Focus on U.S. Inflation Data Sank the Dollar’s Recent Gains

Following recent strong gains, the dollar on a basket of currencies dropped to its lowest level in more than two weeks on Monday as investors felt uneasy ahead of U.S. inflation data and as central banks outside of the United States looked to be becoming more hawkish.

In response to arguments for more aggressive monetary tightening from European Central Bank policymakers, the euro increased to more than a three-week high versus the dollar. According to strategists, next week’s Federal Reserve interest rate hike to combat excessive inflation will likely depend partly on how aggressively the monthly U.S. consumer price index report is released.

What Do Experts Predict?

The steady climb of the dollar has stopped. Improving risk sentiment, hawkish CB’s, and expectations that U.S. inflation will signal that the worst is over affected the climb. Gasoline prices continued their decline from their record high in June, according to the New York Fed’s monthly survey of consumer expectations, which was revealed on Monday. This is likely to relieve the US central bank, concerned that the highest inflation in 40 years might alter consumers’ perceptions of how sticky recent price shocks may be.

As a result, the euro reached its best level versus the dollar since August 17. Last week, it fell to a 20-year low of $0.9862. At $1.0117, the euro was recently up 0.7%. To stop record inflation in the eurozone, ECB members perceive growing chances that the institution may need to raise its benchmark interest rate to 2% or more.

As a result of a sharp increase in energy prices brought on by the conflict in Ukraine, the Ifo institute predicted Germany’s economy would expand next year. However, Germany’s economy will decrease. Sterling traded at $1.1681, up 0.8% daily and off a 37-year low. At 142.75 yen, the dollar was marginally higher than the Japanese yen, down from last week’s 144.99 yen.